A new study says knowledge is money: If workers knew how much they could make elsewhere, even more would quit their jobs — and low-wage roles would be forced to pay more

A lot of jobs would be unsustainable if low-wage workers knew how much they could make elsewhere.

The University of Cologne, the London School of Economics, and the University of California, Berkeley have collaborated on new research. They set out to see if workers know what similar jobs pay and if they know what other jobs are worth. That doesn't seem to be the case in the real world.

The researchers surveyed German workers in two years. The result is that workers think that wages elsewhere are closer to what they actually make than they actually are.

A study found that up to 17% of low- wage jobs in Germany wouldn't be viable at their current pay if workers knew how much they could make elsewhere. There are anecdotal reports of labor shortages and quitting in the post-vaccine economy.

Benjamin Schoefer, an economist at UC Berkeley and one of the paper's authors, told Insider that workers would quit or ask for large raises if they had accurate information about their wages.

The US has seen a quitting boom.

A record number of Americans have quit their jobs in the last eight months. The Bureau of Labor Statistics reported that 4.5 million workers quit in the month of November. A record 1 million leisure and hospitality workers quit, led by low- wage workers.

Nick Bunker, the economic research director at Indeed, says that the new study from Schoefer and his colleagues presents an "intriguing argument". Workers have become aware of their outside options at other firms and that has led to some quitting.
Bunker told Insider that people are more likely to quit their job if there's just a certain level of demand.

Schoefer says that if workers become more informed about what they could be making elsewhere, they might ask for raises or quit.

Schoefer said that a lot of workers that used to be stuck in low wage jobs may now realize that there are other jobs out there that are paying more.
The survey only covers German workers, not Americans. Schoefer said that the German and US economies share a lot of similarities, and that it makes a big difference if you work at a high-paying or low-paying firm. Schoefer said that similar insights could apply to low-wage US workers during normal times.

Schoefer said that during the Pandemic, a lot of US workers lost their jobs completely, with the country relying on unemployment insurance for those laid-off workers. That could have led to more turnover. Germany saw people stay in their jobs as the government subsidized their payrolls.

Some Americans who received enhanced unemployment benefits said it caused them to rethink. They either used the benefits to change their lives or they just got paid more. Even so, research showed that unemployment benefits had little to no effect on employment levels.

More equal wages could be achieved by transparency.

The paper asks what could be done to improve workers' information. There are salary transparency laws that are on the rise. If you can easily see how much others make, you might be able to help workers figure out if they're getting paid enough.

If everyone realized how much more they could make, what would happen?

Schoefer said that they would love to run that experiment in reality. We don't know for sure, but their theoretical model showed two key effects.

He said that the first effect is that workers realize they're getting paid too much. The second effect is that firms realize they can't get away with underpaying these workers who might not realize that they're getting underpaid."

You would see higher wages, more similar wages, fewer differences in wages between firms in the smaller, low wage sector.